Stock markets have started to surge on the back of some strong economic data showing that the US economy is growing again.
While this bear market is reaping rewards for many investors, words of warning come from one expert who fears that some investors are becoming too complacent.
He also highlights that the economic data is not necessarily all good news.
The warning comes from Russ Koesterich, an analyst at asset management firm BlackRock, who points to news that America added 136,000 new jobs in January, which pushed the rate of unemployment down to 7.7%.
That’s the lowest since 2008, but the hourly earnings for workers has remained stagnant and is not keeping up with inflation as wages increased just 2% last year.
This data, says Koesterich, suggests that while the American economy is managing to generate new jobs, it’s not at a fast enough rate to drive up wages.
He also says that the US labour force participation rate of 63.5%, the lowest figure since August last year, will slow the economy’s growth as fewer people are available for work.
This means that in the long term, underlying problems with economic growth in the US signal investors should become more selective to protect themselves.
Koesterich said: “Stocks have been experiencing a strong run and the magnitude of recent gains is causing some indicators to flash yellow.
“After spiking a couple of weeks ago, volatility measures have fallen again, suggesting that some investors are becoming complacent. Investors should become more selective as they look at potential investment opportunities.”
He also says that the growth in corporate earnings is not keeping up with price rises, which makes some stocks less attractive – though still better value when compared to cash and bonds.
Economy under pressure
Other economic data for the US show that there was a fall of personal incomes of 3.6% last year and shopping malls saw a drop footfall traffic of 4% in January.
Consumer spending in the US is under pressure and small businesses lack confidence.
However, other analysts are pointing to the growing divergence between the US economy and the weakening Eurozone which has seen the European Central Bank cut its inflation and GDP forecasts in response to further signs that America is growing economically stronger.
Though commodities have performed poorly since the end of 2011, many analysts are now predicting an upturn in prices led by global growth as countries require more oil and industrial metals.
Agricultural commodities are highlighted as best for short term investment opportunities.